Supply chain · 2 February 2017

Domestic demand drives growth for small manufacturers

Small manufacturers
Small manufacturers reported that the costs of labour, materials and overheads all rose in the last three months

The UK’s small manufacturers have enjoyed the highest demand for domestic orders in two years, according to an industry survey, but rising costs could soon undermine growth.

The Confederation of British Industries’ (CBI) quarterly trends report uncovered fresh optimism in the sector, with almost a third of small manufacturers reporting an increase in domestic trading in the last quarter.

Workforces were also expanded, with 21 per cent of small manufacturers employing more people than three months ago.

Reflecting on the latest trends, CBI economist Alpesh Paleja said that activity among small manufacturers was “ticking along nicely”.

However, despite better trading in the UK market, sector predictions that firms would exploit the weakened pound for exporting opportunities were yet to materialise.

In November 2016, the CBI reported that anticipated export growth was at its highest for manufacturers since 1988. In its latest report, less than a quarter of owners said that exports had increased since then, with almost one in five stating exports had actually fallen in the last three months.

According to the CBI, rather than creating opportunities for small manufacturers, the decline in the value of sterling had so far only increased prices at home.

Average costs of labour, materials and overheads rose at the fastest rate since April 2011, and factory gate prices – the cost of goods leaving factories before any mark-ups are added – continued to rise.

Paleja warned that price inflation would eventually reach consumers.

“The lower pound is clearly stoking cost pressures, which in turn is pushing up factory gate prices. This will eventually feed through to prices at the till, so further rises in consumer price inflation are on the cards,” he said.

Prime minister Theresa May’s recently announced “ten pillars” outlined the government’s commitment to improving infrastructure and growth in UK industries to create “world-leading sectors”.

Paleja added that the pledges represented a boost to the sector.

“Small manufacturers will welcome the government’s industrial strategy green paper, which recognises the importance of driving productivity growth across all sectors of the UK.”

Looking to find business overseas? Ten tips to make international trading simple

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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